The new head of the Society of British Aerospace Companies says the defence industry is "bitterly disappointed" with the UK Government's decision to close the Defence Export Sales Organisation (DESO).
DESO promotes UK arms sales and plays a key role in helping British companies secure defence contracts.
Prime Minister Gordon Brown announced the closure of the department in July.
Society president Allan Cook says the demise of DESO "clearly has the potential to adversely impact on our ability to continue to win defence business internationally," UK newspaper the Financial Times reports.
"For all companies, but particularly for [smaller ones], it represents a real setback," Cook says.
"Here we are in a global market with excellent products and services – and we severely compromise our route to the valuable export market."
DESO's duties will now be shared by UK Trade and Investment and the Ministry of Defence.
By Elizabeth Clifford-Marsh